Ethiopian Growth May Slow Next Year on Inflation, IMF Says

Ethiopia
Ethiopia

(Updates with comment by IMF in third paragraph.)

William Davison, (Bloomberg) — Ethiopia’s economic expansion may slow next fiscal year amid rising inflation, restrictions on private-bank lending and a “difficult” business environment, the International Monetary Fund said.

The growth rate may slow to 6 percent in the fiscal year to July 7, 2012, from 7.5 percent this year, the Washington-based lender said in an e-mailed statement today. The IMF’s estimate for 2010-11 growth is below the government’s projection of 11.4 percent for the period.

“The principal macroeconomic challenge is surging inflation,” the IMF said. “While this partly reflects rising international commodity prices, excessive monetary growth has been the principal cause.”

Ethiopia’s annual inflation rate jumped to 29.5 percent in April from 25 percent a month earlier as food prices increased, the Central Statistical Agency said on May 10. Broad money- supply growth was 35 percent at the end of March, said the IMF, which had previously projected growth of 22 percent in money supply this fiscal year.

National Bank of Ethiopia officials weren’t immediately available for comment when Bloomberg called the central bank.

Imported price increases are the main cause of inflation and monetary factors only account for a small portion of the rise, the bank said on May 10.

Price Caps

In an effort to curb inflation, the government introduced price caps on 17 items including meat, sugar, bread and beer in January. The ceilings will be removed this week apart from those on sugar, palm oil, bread and flour, Trade Ministry spokesman Amakele Yilma said in an interview today in the capital, Addis Ababa.

The IMF “welcomes the decision to lift most price controls and urged the government to consider measures to improve the business climate and reduce the costs of trade.”

Ethiopia should also reconsider a directive that compels private lenders to buy government bonds worth 27 percent of their loans “in order to lessen its disruptive impact on the banking system,” the IMF said.

The measure, announced by the central bank last month, may raise 11 billion birr ($655 million) to finance government development projects, while crimping private lenders’ profits by about 15 percent, Addis Ababa-based research group Access Capital SC said last month.

Ethiopia, Africa’s second-most populous nation, is the continent’s biggest coffee producer.

–Editors: Paul Richardson, Karl Maier.

To contact the reporter on this story: William Davison in Addis Ababa via Nairobi at pmrichardson@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net